The Healthcare Supply Chain Top 25 for 2012 features organizations across the value chain, focused on working together to solve challenges involving supply chain inefficiencies and healthcare quality. Leaders are building data-driven capabilities to enhance efficiency and improve patient outcomes.
Cardinal Health is the first company to take the No. 1 slot two years in a row, due to robust financials, and tremendous peer and analyst recognition for its multifaceted value chain role as distributor, wholesaler and manufacturer.
Mayo Clinic takes the No. 2 this year, due to its sophisticated infrastructure that connects supply chain, clinical and financial performance. BD, Intermountain Healthcare and Owens & Minor round out the Top 5, respectively.
Health systems, with a broad span of control and mature technology infrastructures, have done very well on our ranking from year to year.
Leading manufacturers and distributors are focusing supply chain performance management strategies on the critically few metrics that capture the supply chain value expected by customers.
Use Gartner's healthcare value chain capabilities model to self-assess your organization against the major capabilities that drive high-quality patient care at lower costs.
Collaborate with trading partners on data standardization and harmonization, which will lay the groundwork for the emergence of data-driven capabilities to improve outcomes, quality and cost.
Providers must continue to implement more standardized supply chain processes and work with manufacturer, distributor and service provider partners to understand best practices in all areas of the supply chain.
Supply chain at manufacturers and distributors must continue to work collaboratively across commercial and development divisions to ensure that an accurate understanding of what customers value drives forward-looking strategies.
Table of Contents
- Inside the Numbers
Healthcare Value Chain Capabilities
- The Healthcare Supply Chain Top 25 Methodology
- Figure 1. Healthcare Value Chain Capabilities Model
- Figure 2. Peer Opinion Panel Composition: Value Chain Segment
- Figure 3. Peer Opinion Panel Composition: Role
- Figure 4. Peer Opinion Panel Composition: Revenue
The Fourth Annual Healthcare Supply Chain Top 25 ranking features organizations in the midst of transformations that will fundamentally alter the business practices of the past. As the 2012 U.S. election cycle is over, organizations have greater clarity on one important element responsible for this uncertainty — the U.S. healthcare reform landscape. All segments of this value chain understand that reform is now moving to implementation. The good news is that most organizations on our ranking anticipated and prepared for an era of accountability in healthcare. All the leaders on our ranking in one way or another have elements of the following capabilities baked into their supply chain strategies:
Data standardization and interconnectivity — Leaders from manufacturers, distributors, healthcare providers and pharmacies are all involved in efforts to standardize transactional data between trading partners. While transactional data standardization is expected to drive out waste and inefficiencies (a fact demonstrated by a number of organizations on our ranking), the major future benefit will come in patient outcome and quality improvements. The data-driven value chain is integral to development of the outcome-driven value chain. One unique example involving many of the organizations on our list is the MDEpiNet (Medical Device Epidemiology Network) initiative. This initiative involves academic, government and private sector organizations to develop outcome-based intelligence and to improve medical device surveillance.
Visibility and collaboration — All segments of the value chain represented on our Top 25 ranking are focused on developing greater visibility to key data exchanged between upstream and downstream trading partners. This visibility can only be created when the partners collaborate on sharing and utilizing this data. Meanwhile, on the manufacturing side, inventory visibility is key to many of the ongoing working capital initiatives and agility strategies. Distributors and healthcare providers see the importance of visibility in improving supply shortages faced throughout the year, and improving recall processes.
Process standardization — This is particularly important to the providers on our list this year. Many integrated delivery networks (IDNs) are focused on implementing industrywide standard supply chain processes. In essence, these organizations are looking to drive their organizations to more of the norm when it comes to excellence in supply chain management (SCM). In doing so, they are looking to their manufacturing and distribution partners to bring them up to speed more effectively. While this is particularly pronounced for the healthcare provider segment, manufacturers are looking for greater global leverage as well by standardizing core cross-functional processes like sales and operations planning (S&OP).
Segmentation, segmentation, segmentation — Customer, supply chain and supplier segmentation are initiatives many of the organizations on our list have embarked upon in 2012. While it is too early to say what ROI organizations have achieved by creating these strategies, we expect the value chain to pursue these opportunities in greater numbers over the coming years to simplify an increasingly complex supply network, and to avoid relying on a one-size-fits-all approach to delivering customer value.
Maturing supply chain metrics strategies — Many of the leaders across all segments on our ranking have committed to improving their supply chain performance management strategies. This year we see healthcare providers and manufacturers developing greater clarity and connectivity between their supply chain metrics cascade, while distributors are focusing on developing the critical few metrics that capture the primary value expected by their customers.
These capabilities are all interrelated to some degree, and all are dependent on robust and credible data from interconnected clinical, operational, and financial systems. While this interconnectivity is early in development, data-driven capabilities in the healthcare supply chain are emerging, and will lay the foundation for the outcome-driven value chain that will take shape over the next few years. Let's take a close-up look at the leaders of this year's Healthcare Supply Chain Top 25 (see Table 1).
Source: Gartner (November 2012)
Cardinal Health captured the No. 1 spot again this year, the first time we have had a company place in the top spot two years in a row. Its financial performance is consistently impressive, even though its inventory turn performance fell slightly. Continuing its upward trend from last year, Cardinal Health was the top vote getter from peers and the analyst community. Its pharmaceutical and medical segments have unique capabilities, based on the value requirements of its varied customer base. The company, overall, is considered a leader by upstream and downstream trading partners, which is validated by some deeply collaborative relationships on both fronts.
Mayo Foundation (No. 2) moved up from No. 4 in last year's ranking. Mayo's quantitative metrics are very strong, and it received a large increase in recognition from peers and the analyst community. Mayo continues to be one of the rare leaders in healthcare that has turned its supply chain capabilities into a revenue generator for the organization. It also has one of the more sophisticated technology infrastructures of any provider, and is making tremendous headway in linking financial, operational and clinical data systems to provide patient outcome and procedure cost intelligence to drive decision making. Mayo is a recognized leader in data standardization and adoption initiatives, and is one of the core organizations involved in the MDEpiNet initiative mentioned earlier. Mayo is currently working on its customer and supplier segmentation programs, and has remarkable bench strength in its supply chain team.
BD (No. 3) maintained its position from last year. Even though its return on assets (ROA) dropped slightly, its overall financial performance is fairly consistent. BD continues to earn enormous recognition from peers and analysts. Part of this can be attributed to BD's continued leadership in data standards adoption and the pilot work it has done with Mercy over the past year in driving fully automated ordering processes, with the goal of achieving perfect order status. BD continues to garner deep respect from its health system customers. Internally, BD has a great deal of maturity in working collaboratively across functional boundaries.
Intermountain Healthcare (No. 4) moved up three spots from last year, due to commendable financials, but more significantly, a large increase in recognition from peers and analysts. Intermountain Healthcare's $40 million consolidated services center is now operational, and serving its diverse customer base from a central location. Like many of the provider leaders on our ranking, Intermountain's span of control for supply chain is large, including print services and sustainability initiatives. It has also developed a leading-edge supply chain performance management capability that cascades down from the overall organizational objective and mission. Intermountain is at the forefront of innovative procurement processes in preparation for the accountable care business model. Additionally, Intermountain's internal capabilities in serving homecare patients are a leading model for industry.
Owens & Minor (No. 5) has maintained its place in the Top 5 again this year. A slight increase in its ROA buoyed its financial score since its inventory performance decreased somewhat. While its peer recognition score fell slightly again this year, the analyst community continues to regard O&M highly. O&M recently acquired European distributor Movianto to secure a foothold in global expansion. Additionally, it is pioneering some innovative supply chain performance management initiatives by focusing on the critical few metrics that matter to its customers and providing a true picture of waste and excess cost in the value chain. It also has some innovative capabilities capturing key demand and inventory data, and sharing this information with its trading partners. O&M is often identified as a good listener to customer needs, and is active in creatively enabling expanded supply chain capabilities at health systems.
Abbott (No. 6) moved up two spots from last year on the strength of peer and analyst recognition. Abbott did exceptionally well again with our healthcare systems voters, a testament to solid work on the diagnostic side of the house. On the pharmaceutical side, Abbott is developing new best practices through its track and trace/serialization pilot with McKesson and the U.S. Department of Veterans Affairs (VA), using GHX's infrastructure. It continues to build off its voice-of-the-customer work, while sharpening and continuing to mature its customer and supply chain segmentation initiative. Abbott has also strengthened internal business processes in areas such as S&OP. Due to the split into two businesses, this is the last year Abbott will be represented as a holistic company, inclusive of pharmaceuticals, nutrition and diagnostics.
Johnson & Johnson dropped one spot this year to No. 7. J&J's supply chain transformation across its three sectors continues, and it is in the process of developing a more unified approach to its customers and channel partners. For such a complex organization, J&J has created a straightforward and crystal clear supply chain metrics cascade that captures key strategic and operational metrics. It has also made risk management and quality management central to its strategy.
Novartis moved up one to the No. 8 spot this year. Novartis' financial performance improved slightly, primarily due to higher inventory turns that have resulted from its efforts over the past years to streamline and reduce working capital and cycle times. The analyst community at Gartner continues to recognize Novartis as an industry leader in its deployment of core cross-functional supply chain processes, such as S&OP, and the executive commitment it receives for S&OP as the engine that drives the organization. It's beginning to realize tremendous benefits from its lean and complexity reduction initiatives, and has made an organizational commitment to supply chain talent development.
Mercy (MO) experienced a substantial drop from last year, falling to the No. 9 spot. A couple of factors combined to bring about this result. First, Mercy continues to struggle with its quality of care metric. Secondly, Mercy experienced a fairly large drop in recognition from its peers. However, the analyst community continues to see Mercy as a visionary leader in the healthcare supply chain. Mercy's supply chain has a huge span of control, including the self manufacture of its own private-label products. It continues to commercialize its capabilities, working with many health systems to improve their own supply chain performance. It's pilot with BD on data standardization and fully automating the ordering process has built the foundation for greater adoption of comparative effectiveness initiatives as evidenced by its leading role in the MDEpiNet initiative. One interesting fact is that a number of leaders of Mercy's supply chain are now leading up the supply chains of IDNs across the United States, which supports the famous cliché "imitation is the greatest form of flattery."
Geisinger Health System maintains its ranking from last year (No. 10). Its quality of care metric jumped significantly, while most other elements of the composite score stayed roughly the same. Geisinger is working diligently to develop standard processes to drive its supply chain transformation as more of an embedded part of the organization and less as a stand-alone department, It is making great strides in introducing lean to drive continuous improvements. Geisinger continues to develop leading-edge capabilities as a joint provider/payer in utilizing reimbursement and patient outcome data.
No. 11 Through No. 15
McKesson moved up three slots to take No. 11 this year on the strength of its ROA and inventory turns, and solid recognition from peers and analysts. McKesson's capabilities stretch across traditional pharmaceutical wholesaling to expanded distribution services through its acquisition of PSS, to medical practices to technology-driven solutions, which combine to drive efficiencies in order processing and order accuracy. Its robust technology solution set should help McKesson get in front of the data-driven needs of this value chain.
AmerisourceBergen maintained its No. 12 ranking from last year, based on its inventory turn performance and its improvements in ROA. AmerisourceBergen is recognized as a leader in efficiently moving branded, generic and specialty pharmaceuticals, and helping downstream trading partners recognize the benefits of more efficient supply chain processes.
Pfizer made a marked improvement over last year, moving up six spots to No. 13. While its financial performance was consistent with the prior year, Pfizer received a solid bump in peer and analyst recognition. This recognition can be attributed to the industry-leading supply chain virtualization efforts it has implemented and its commitment to institutionalizing an enterprisewide supply chain performance measurement strategy, focused on the critically few metrics required to manage its businesses. Pfizer's supply chain focus on the healthcare needs of the complex global population is a model for other globally complex organizations.
UPMC Health System moved into the Top 15 this year, improving from No. 21 to No 14. While its quantitative measures were nearly the same as last year, UPMC saw an increase in peer and analyst recognition. Like many of the other leading provider supply chains, UPMC has commercialized certain elements of its supply chain, and it also has its own self-distribution capability. It has a robust value analysis program and innovative processes around managing drug shortages and a strong management team from outside healthcare, bringing innovation to most aspects of supply chain.
Cleveland Clinic (No. 15) closed out the Top 15 this year. Its poor quality of care performance was the main driver in its fall this year, even as Cleveland Clinic received an increased share of the analyst vote. Cleveland Clinic has made strong investments in supply chain talent and bench strength, and is a demonstrated leader in the procure-to-pay and value analysis processes.
A diverse set of organizations make up No. 16 to No. 20 of our ranking. At No. 16 is device manufacturer Boston Scientific. Boston Scientific has a strong reputation for driving collaborative opportunities with its customers. Additionally, it continues to excel at foundational planning and replenishment processes, and has innovative initiatives under way with certain trading partners to remove excess waste from the value chain. CVS Caremark maintained its ranking from last year (No. 17) on the strength of its peer opinion and the ROA component of its financial score. CVS has made large improvements in productivity, logistics cost reduction and on-time delivery performance through a transformation in its logistics processes. AstraZeneca (No. 18) has moved up two slots on the strength of its financials and improved peer opinion scores. While AZ is focused on driving cost improvements, it is committed to transforming its supply chain into a demand-driven value chain over the coming years. Bristol-Myers Squibb (No. 19) has dropped four spots this year, primarily due to changes in its financial metrics and a slight decrease in peer recognition. However, BMS has a significant number of initiatives under way to position it well for the market changes occurring in this value chain. For instance, BMS is committed to improving its foundational planning and supply chain performance measurement capabilities, and it is also continuing to drive data and process standardization efforts. Baxter (No. 20) rounds out the Top 20 of our ranking. Baxter has a robust home health business, and has developed capabilities that link mobile applications and operations systems to more effectively support its home healthcare business.
The last segment of our ranking is composed of three health systems, a retail pharmacy and a biotech manufacturer. Walgreens has rejoined the Top 25 this year, due to the strength of its ROA and an increase in peer and analyst recognition. Earlier this year, Walgreens purchased Alliance Boots, which has greatly expanded its global reach and distribution capabilities. Walgreens also continues to roll out preventative care capabilities at its facilities. Amgen (No. 22) continues to receive strong peer and analyst recognition for its reliable supply of long cycle time manufacturing processes and its expertise in cold chain distribution. The next organization is new to our list this year. Memorial Hermann Healthcare System (No. 23) has tremendous financial and quality of care quantitative measures, and received enough recognition from peers and analysts to make the list. Memorial Hermann is committed to driving sustainability objectives into its operational performance. It also collaborates deeply with its primary distribution partner, and has one of the most extensive point-of-care supply chain automation networks in the country. Advocate Healthcare (No. 24) is also new this year. Advocate has strong quality of care and financial quantitative measures, and is recognized for its investment in leadership and for a strong organizational connection to patient care that connects with supply chain. Advocate's pursuit of a new type of distribution relationship is one to watch for 2013. Kaiser Permanente finishes off the list again this year, with strong peer and analyst recognition. It's recognized for its strong technology infrastructure, which is allowing it to correlate operational, financial and clinical data uniquely in its combined payer-provider model. It is also committed to standardizing its historically regionalized supply chain processes across the country, and reducing costs through network optimization efforts. Kaiser was negatively impacted by having incomplete submission of all Medicare inpatient data to The Centers for Medicare & Medicaid Services (CMS), which resulted in a quality score of zero.
For the Healthcare Supply Chain Top 25 for 2012, we maintained our model for value in healthcare. Our model is designed to highlight activities in the healthcare value chain that enable high-quality patient care at optimal cost, driven by the following core set of capabilities:
Source: Gartner (November 2012)
Patient focus — Here we see a patient-back supply chain strategy focused on market accessibility, patient outcomes, care quality, and cost impacting — all intra- and interorganizational functions from product development to partner collaboration.
Collaboration — Trading partners must enter into sustainable, collaborative relationships with a shared vision and transparent set of mutual goals to create win-win improvements influencing the entire value chain.
Network visibility — Trading partners must create bidirectional visibility to key information, such as inventory, demand, compliance, outcomes and cost.
Dynamic supply — Because high-quality outcomes aren't static targets, all organizations must create agile, value-added supply chain responses tailored to multiple customer and channel segments.
Change management — Value in healthcare is a long-term quest, and organizations must have the vision, strategy, execution discipline and strong governance to sustain change in the face of ingrained beliefs and process habits.
Foundational excellence — To drive toward higher-level capabilities, organizations need to focus on the basics and optimize their operational excellence and business process harmonization initiatives. Moreover, they need to ensure that their systems are capable of supplying credible data on which to implement higher-level capabilities that affect outcomes and cost. Developing future supply chain talent requirements is important at the foundational layer as well.
This model is also used to guide peer and analyst voters as they consider companies to select for the ranking. The organizations that received the most recognition have established either a strong and credible foundation, an innovative vision for future success, or are already pursuing and realizing benefits from joint initiatives with trading partners. Although our model cannot ensure success in execution, the industry, overall, recognizes that the path toward a future healthcare system, one that is cost efficient and focused on patient outcomes, is based on the principles captured in our model. Wherever a company sits in the value chain, and wherever one falls on this year's ranking, this model can be used to frame and set parameters to supply chain strategic goals. At the same time, leaders must develop the skill sets most conducive to executing against initiatives that involve an end-to-end understanding of processes and culturally ingrain a "patient back" perspective within their company.
Consistent with our Top 25 research methodologies, the Healthcare Supply Chain Top 25 ranking is derived from two main analyses — quantitative measures and opinion. Quantitative measures provide a view into how companies have performed in the past, and establish proxy connections between financial health, performance and supply chain excellence. The opinion component offers an eye to value chain leadership and demonstrated supply chain performance — crucial characteristics of our Top 25 ranking. These two components are combined into a total composite score.
Health systems have vastly different operating models. Access to common, public financial data is not easily captured, compared to publicly traded manufacturers, distributors and pharmacies. Therefore, we utilized different assessment methodologies for these two major segments of the healthcare value chain.
The first step in our Top 25 methodology was to identify a population of companies to include in the analysis. Consistent with prior years, we derived a 2012 master list of manufacturers, distributors/wholesalers and retail pharmacies from a combination of sources. Compared to the methodology for our global cross-industry Supply Chain Top 25, we decreased the annual revenue thresholds required for inclusion to ensure that we cast as wide a net as possible. However, one factor remained constant: All companies must publish audited financials specific to a healthcare business to be included in the Healthcare Supply Chain Top 25.
The second step in our methodology was to determine the quantitative measures to utilize in our analysis. Consistent with prior years, we utilized ROA and inventory turns for operating and supply chain effectiveness, respectively. Publicly available, audited financial data was collected for each company for the years 2009 through 2011. This data was used to calculate a three-year weighted average for ROA and a 2011 end-of-year measure of inventory turns.
The third step in our methodology was to determine the weighting applied to the quantitative measures versus the opinion score. We strongly believe that the collective wisdom of the healthcare crowd points the way to supply chain excellence and successful trading partner collaboration. We also believe that repeated, bidirectional and genuine collaboration between trading partners is a crucial ingredient to achieving value in healthcare. So, consistent with last year's methodology, we applied a 40% weighting to the quantitative measures and a 60% weighting to the opinion score.
Our methodology used to select and rank health systems has remained consistent for the past three years. After we released last year's ranking, we made a point to discuss this methodology with key executives from major health systems. The majority of these executives support this methodology, which has allowed us to keep the primary components in place for 2012. Many would like to see a comparable quality metric for the manufacturers, distributors and retail pharmacies, something we are continuing to explore.
Our list of eligible health systems was developed based on two factors. Since there are approximately 280 health systems in the U.S., we chose to down-select health systems, utilizing one main criteria consistent with our overarching goal for the healthcare supply chain — quality of patient care. We also set a revenue threshold of $750 million (USD) and above to be eligible.
As we did last year, we partnered with Truven Health Analytics (formerly the Healthcare business of Thomson Reuters) on two components of the process: to determine a meaningful group of health systems to analyze, and to determine a proxy for quality-of-care score for the health systems.
Truven Health has collected quantifiable public data in 10 key areas of patient care for the last 19 years. The results are published in its 15 Top Health Systems report on patient care, which is part of its 100 Top Hospitals program. This percentile score is based on publicly available data across 10 measurements of patient care performance, including mortality, complications, patient safety, core measures, 30-day patient readmits, 30-day mortality, average length of stay (ALOS), expense, operating profit margin and Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS).
As previously mentioned, we used the Truven Health report for two purposes. First, we used Truven Health's Top 2 Quintiles list of health systems, $750 million and greater, as the base population eligible for our ranking. To be consistent with our previous Top 25 rankings, we added in six systems that scored high in the peer and analyst voting during "The Healthcare Supply Chain Top 25 for 2011." Second, we used the percentile score from the 15 Top Health Systems report from Truven Health to develop a force-ranked score for the quality of patient care for each hospital system.
As we did last year, we chose bond rating as a proxy for operational efficiency at the health system level. Although a bond rating is not a perfect proxy of operational efficiency, it does reflect the financial discipline and management effectiveness of a health system. We used ratings from Standard & Poor's (S&P), Moody's and Fitch to develop an aggregate bond-rating composite score. For consistency purposes, we mapped all bond ratings to the S&P scale, which is reflected in Table 1.
The last step in our health system methodology was to decide how to balance our quantitative measures and opinion scores. To maintain consistency with last year's methodology, we applied a 30% weighting to the quantitative measures and a 70% weighting to the opinion score. Here, once again, the wisdom of the collective healthcare crowd should prevail.
The goal of the opinion component is to draw on the extensive knowledge of the professionals who interact and have direct experience with the organizations being ranked. Any supply chain leader from a manufacturer, distributor, pharmacy or health system is eligible to vote. However, only one vote is accepted per company.
This year, we received peer votes from 70 supply chain leaders, approximately a 17% increase over last year. Voters came from the most senior levels of supply chain organizations from across the value chain. The voting composition is consistent with the representation from the different segments in the value chain overall. This year we had 34 voters from the manufacturing sectors, and 22 from the healthcare providers. The other 20% of votes came from distributors, retailers and external industry experts.
Seventeen Gartner analysts, representing various industry and functional specialties, cast analyst opinion votes as well. Each of these analysts drew on his or her primary field research and work with healthcare value chain companies when casting a vote.
Source: Gartner (November 2012)
Source: Gartner (November 2012)
Source: Gartner (November 2012)
Peer panel polling was conducted during late September 2012 and October 2012, via a Web-based, structured voting process identical to previous years. Voters were taken through a four-page system to identify their final selection of leaders.
Here's a breakdown of the four-page system:
The first page provided instructions and a description of our model for value in healthcare. Specifically, they were asked to consider the following:
Which organizations are developing and implementing strategies to support the delivery of high-quality patient care at optimal costs?
Which organizations are building and implementing supply chain capabilities in the areas depicted on our healthcare value chain capabilities model?
The second page solicited demographic information from voters.
The third page provided panelists with a complete list of the organizations to be considered. We asked them to choose 30 to 50 that, in their opinion, most closely achieved the ideal of value in healthcare.
After the subset of leaders was chosen, the panelists were then asked to force-rank the companies from No. 1 to No. 25.
Individual votes were tallied across the entire panel, with 25 points earned for a No. 1 ranking, 24 points for a No. 2 ranking and so on. The analyst panel and the peer panel used the exact same polling procedure.
By definition, each person's expertise is deep in some areas and limited in others. Despite that, voters weren't expected to conduct external research to place their votes. The polling system is designed to accommodate differences in knowledge, relying on what author James Surowiecki calls the "wisdom of crowds" to provide the mechanism that taps into each person's core kernel of knowledge and aggregates it into a larger whole.
All this information — that is, the quantitative measures and opinion votes — is normalized onto a 10-point scale and then aggregated using the aforementioned weighting into a total composite score. The composite scores are then sorted in descending order to arrive at the final Top 25 ranking.
The Healthcare Supply Chain Top 25 highlights excellence across the entire value chain, and has done so for four years now. Our goal remains to provide a platform where industry leaders are recognized for the innovative improvements they are making and the innovative capabilities they are pursuing to move the industry in a new and positive direction The leaders on our ranking have the greatest opportunity to define the future framework of the healthcare and life sciences value chain. We feel that this framework includes many of the fundamental capabilities referenced in this research, including the ability to correlate supply chain cost and service data, patient outcomes and quality intelligence, and reimbursement patterns. The major outcome of the collaboration and transformation occurring at these leading organizations is the mandate for these leaders to take charge and define what the future of the industry looks like. We applaud the 2012 Top 25, and look forward to a future where these new characteristics of value in healthcare frame all discussions around healthcare delivery and innovation.
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